Let me talk you through a couple of my favourites. As the table below shows, each of these dividend stocks provides a dividend yield far ahead of the 3.5% FTSE 100 forward average.

Dividends are never, ever guaranteed. But if broker forecasts prove accurate, a £20,000 lump sum invested equally in these stocks could net me a £1,380 second income next year.

I’m not just interest in buying stocks for large near-term dividends. I’m also seeking companies that could provide a sustainable and growing payout over time.

I believe that these dividend stocks could hit both of these targets. Here’s why I’m considering buying them for my portfolio.

Stelrad Group

As a manufacturer and seller of radiators, profits at Stelrad Group are highly sensitive to the broader economic environment. Revenues here dropped 8.9% in the six months to June as tough economic conditions endured.

While it’s not out of the woods yet, signs of improvement in its UK and European territories provide cause for optimism. I’m especially excited by the company’s earnings prospects in its home market as the government takes steps to supercharge home construction.

Demand for Stelrad’s products could rise sharply if the government meets its objective of 300,000 new homes by 2029. Remember though, there remain significant hurdles to making these plans a reality.

In the meantime, the radiator maker looks in good shape to continue raising the dividend. It hiked the interim payout for 2024 by 2%, to 2.98p per share, citing in part “confidence in the group’s future growth prospects and increasing cash generation”.

With leverage of below 1.5 times, it could afford to continue paying a large dividend in 2025 even if market conditions remain tough.

Supermarket Income REIT

Supermarket Income REIT’s another high-yield stock I’m considering buying to hold for the long term.

Like Stelrad, it has a great chance to increase profits as Britain’s population steadily rises. While the radiator maker will benefit from increased housing demand, Supermarket Income stands to gain as the number of mouths that require feeding grows.

More recently, this real estate investment trust (REIT) also expanded into France to give earnings an extra boost.

The business doesn’t just let out its properties to any old retailer either. Its tenants are blue-chip grocers like Tesco, Sainsbury and Marks & Spencer. So it doesn’t have to worry about rent collection issues that could impact its ability to pay dividends.

As a REIT, Supermarket Income has to pay out 90% of annual rental profit to its shareholders. So unless earnings fall off a cliff, investors can expect to receive a tasty payout each year.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice.

On the downside, higher interest rates have taken a bite out of earnings more recently. But with inflation falling, there’s a good chance this will become less of a threat looking ahead.

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Smaller companies are often in the early stages of their lifecycle, which means they invest any extra cash they have to fuel earnings growth.

These businesses also often have limited financial resources, while their cash flows can be volatile, making it difficult to pay regular dividends.

7% dividend yield

However, it’s not impossible for investors to find small-cap stocks that pay a tasty dividend. Stelrad Group (LSE:SRAD), Alternative Income REIT (LSE:AIRE) and Ramsdens Holdings (LSE:RFX), for instance, have recently caught my eye with their hot dividend forecasts.

These can be seen in the table below.

Based on these figures, a £20,000 lump sum invested equally across them could make me £1,400 in passive income this year. The average yield across these three shares is 7%.

So why should investors consider buying them today?

Hot stuff

As a supplier of steel radiators in the UK, mainland Europe and Turkey, Stelrad is at the mercy of tough conditions in these territories’ construction markets.

Indeed, the company advised last week (22 May) that “end markets remain challenging,” and that it had endured “further year-on-year volume declines across most geographies.”

From a long-term perspective, however, I believe Stelrad has plenty of investment appeal. The business is market leader by sales in seven of its countries, and holds a top three position in a further nine.

And has significant opportunities to supercharge volumes in the years ahead, as housebuilding likely picks up and decarbonisation efforts continue.

Income hero

As its name indicates, Alternative Income REIT is set up to supply a steady dividend income to its investors.

Its classification as a real estate investment trust (or REIT) means it must pay 90% or more of annual rental profits out in dividends. This is in exchange for certain tax advantages.

Alternative Income REIT’s dividend history

Property businesses like this are sensitive to interest rates. Indeed, Alternative Income has seen its asset values come under pressure from central bank rate hikes in recent years.

But I’m still a fan of the company. I especially like its diversified property portfolio that helps to spread risk. This includes care homes, hotels, gyms and retail parks.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice.

Top bargain

Ramsdens’ share price performance since 2019.

Ramsdens Holdings has suffered from slowing sales in recent months. It has also been struck by a rise in labour and power costs.

While these remain a threat, I still believe its low, low share price makes it highly attractive. The company — which also provides foreign exchange services and deals in precious metals — now trades on a forward price-to-earnings (P/E) ratio of 8.2 times.

And as I say, the firm also carries that 5%+ dividend yield.

I believe Ramsdens still has considerable long-term investment potential. It continues to rapidly expand, and now has 167 stores in its portfolio. The firm has also been investing heavily in its online operation to capitalise on the e-commerce boom.

The post 7% dividend yield! 3 small-cap dividend shares that could deliver a £1,400 second income appeared first on The Motley Fool UK.

Reliable dividend payments can help to keep my portfolio profitable even if share prices are stagnant.

With a decline in some share prices, many firms are pumping up their dividend yields to appear more attractive. This strategy is often adopted by controversial industries like tobacco manufacturing, but is also prevalent in other industries today.

To that end, I’ve unearthed a small-cap dividend share of a company that’s always in high demand for at least half the year.

Keeping the nation toasty

Stelrad Group (LSE:SRAD) is a stock with a great dividend yield and decent growth potential.

As a manufacturer and distributor of radiators for the UK and Europe, its likely to enjoy high demand for the indefinite future. Even when taking into account the impending threat of climate change, I can’t imagine homes in the northern hemisphere will stop using radiators any time soon.

In the company’s August 2023 earnings report CEO Trevor Harvey discussed plans to increase energy efficiency and reduce emissions. This is critical for the firm’s future, as decarbonisation efforts may require it to meet stricter requirements.

Despite a slight decrease in revenue and sales, the report revealed a pre-tax profit increase of £5.6m. Overall, the CEO appeared confident about the figures, stating they were in line with expectations.

Financials

The Stelrad share price currently sits at 112p, down from 219p since its FTSE listing just over two years ago. Despite the 50% loss in share value, earnings grew by almost 80% over the past year and are estimated to continue rising at 23% per year.

While Stelrad offers a good 7% dividend yield, that’s only part of the story. With the recent fall in share price, the company is now estimated to be trading at only two-thirds of fair value. This suggest potential for growth.

Analysts agree — on average, they predict the share price could rise by as much as 50% in the coming 12 months.

So what’s the catch?

Stelrad only recently listed (late 2021) so there’s limited information about its past performance. This can make it more difficult to evaluate risks.

However, one clear thing is the company’s debt level.

With £90m of debt and only £50m in shareholder equity, Stelrad’s debt-to-equity (D/E) ratio (178%) is concerning. When this metric is higher than 100%, there’s an increased risk that the company could struggle to pay its loans.

Still, the value of Stelrad’s short-term assets are reportedly higher than its liabilities. This means it should be able to sell assets to cover costs if a serious issue arises. Debt is always a key risk to examine closely when evaluating a company. 

Other than that, it has mild growth potential and an estimated future return on equity (ROE) of 31%.

Altogether, I think Stelrad has potential as a reliable penny stock. Although it only recently listed, the company is well-established in the UK and its IPO went well.

With a decent yield and shares currently selling cheap, I’m putting Stelrad on my radar as a potential future addition to a dividend portfolio.

The post 7% dividend yield! Here’s 1 penny stock I’d consider for my portfolio appeared first on The Motley Fool UK.